Our thanks to Mark Lee for this guest post:
The small business community is beginning to wake-up to the changes for VAT on international digital services that apply from 1 January 2015, and those affected are complaining about the lack of guidance about the new rules. As a loyal reader you will be familiar with the basic changes as we have covered this topic in five newsletters this year.
We agree it is difficult to find in-depth official guidance on the new VAT rules. The links on GOV.UK only direct you to register for VAT mini one stop shop (MOSS), and otherwise send you round in circles. However, the ICAEW has an excellent webpage on VAT MOSS that includes links to three very useful helpsheets. For example VAT helpsheet 3 includes 97 technical questions and answers from HMRC, and is well worth a read.
One of the main problems for very small businesses (eg start-ups) is that there is no de-minimis threshold for international digital sales. Even one sale to an end consumer in another EU country will require to be declared and the VAT paid, as most other EU countries have a zero turnover threshold for VAT registration. Thus the small business will either have to register for VAT in the country where the sale was made or use the VAT MOSS.
However, UK businesses must be registered for VAT in the UK before they can use the VAT MOSS. This not only increases their administration costs, (if not already VAT registered) but also forces them to increase prices for UK customers by 20%. It may be possible to split the business into a UK facing entity which is not VAT registered and another entity that makes international sales which is VAT registered. But that instantly doubles the administration costs, as there will then be two entities which need to file accounts and tax returns.
You can submit the VAT MOSS quarterly returns on behalf of your client, but the client needs to register with MOSS first, you can’t do that for them. Once the business is registered for MOSS, it must submit returns for every calendar quarter even if no international sales were made in that quarter. It can de-register for MOSS but then it can’t re-join MOSS in any EU state for two quarters. The MOSS system doesn’t allow the business to set-off any input VAT incurred in other countries, that must be reclaimed using the electronic cross-border VAT refund scheme.
The UK business must also be aware of the VAT treatment of its digital products in the countries where its customers are based. Some digital supplies are exempt from VAT in the UK, such as betting, but are standard-rated in certain other EU countries (eg. Denmark).
There will be lots of other questions to answer about digital supplies, call one of our VAT experts if you can’t find the answer among the links below.
VAT Helpsheet 3: HMRC answers questions about digital services
This information is taken from Mark Lee’s weekly practical tax newsletter, published by the Tax Advice Network, for which you can subscribe at www.TaxAdviceNetwork.co.uk
This is a summary of the law as it currently stands but may not apply to your situation so you should seek professional advice before taking any steps based on the contents. If you would like advice in this or other areas feel free to call. Alastair Wood, AW Accounting, Gravesend, Kent – Accountants who “speak your language”